Fresh Ideas, Bold Moves:  New Entrants Reshape the Industry

The recent foray of Karnataka’s ‘Nandhini’ milk brand into the North Indian market gave jitters to the two dominant players there, viz. Amul and Mother Diary. The fallout analysis apart, the move has yet again fuelled the debate, about the new-market moves, in business circles. The impact of competitive entry into the markets is pondered in detail in management studies (e.g. Online MBA, distance MBA, distance learning BBA and Online BBA)

For companies delving into growth, the grass is greener in the adjacent markets. They foray into these markets with tempting alternatives. Business parlance calls them the new entrants.  Many players are now entering such new ventures in the marketplace. Quick commerce (clocked 280% growth over the past two years) is a striking example. Dominated by Blinkit, Swiggy and Zepto once, an array of new entrants (e.g. Ola, Slikk, Swish, Flipkart Minutes) is now vying to gain a foothold there. Healthcare is another hot pick.  Singapore investment firm Temasek Holdings, acquiring stakes in Manipal Hospitals, is a case in point.

Opportunities

What prompts the companies to look up to new territories? Desire for growth and the saturation of the existing market. Other related factors are:

• Wise deployment of surplus resources (e.g. Blackstone’s (equity firm) entry into healthcare with CARE (Hyderabad) and KIMS (Kerala) hospital acquisition)
• Stronger USP compared to the incumbent brands (Reliance’s Campa Cola’s USP-quality with lesser price)
• Products match the other market requirements (e.g. Nandhini milk’s entry)
• Untapped potential in the destination markets (e.g. Shravan Shankh Agencies (a building materials company) launching the Shankh Airlines.

The Entry Points

Entering a new area by a brand happens in many ways:

• Exploring a New Industry: (e.g. stock market to Airlines (Akasa Air) by Rakesh Jhunjhunwala)
• Buying Iconic Brands: (e.g. TATA’s Big basket takeover)
• Consolidation: TATA Neu app’s consolidation in the digital shopping space covers groceries, electronics, fashion, health, travel, hotel payments, beauty and luxury.
• Price Discounting: (e.g. Health check-up offers by hospitals)

The Trap

The new market move is not without risks. The potential traps for the new entrants are:

• Transitory demand (e.g. high demand for paracetamol during Covid times)
• Entry barriers (e.g. high investments in the aviation sector)
• Incorrect market strategies (e.g. traditional marketing channels vis-à-vis social media)
• Unfamiliar product range (e.g. Amazon’s smartphone venture which didn’t take off)

Incumbents’ Worry, Remedies

Stressing over competition is inherent in business; and is more intense with new entrants as the market is yet to gauge their capabilities.  The incumbents fear that the new players might disrupt the industry structure with:

• Lesser costs
• Higher quality
• Improved technology
• Innovative marketing strategies

Weak entry barriers (e.g. low initial capital, easily accessible suppliers, vulnerable distribution channels) often facilitate easy market penetration. Hence, it is important to keep a regular tab on these aspects. It is also important to monitor product quality, after-sales service, and supply chain closely to ensure that customers don’t look for an alternative.

The Final Word

New entrants do challenge the existing market players, so much so that they may even force the latter to adapt. But battling it out with them may not be wise as they might have earned latent customer support (e.g. low price tag). Many prominent brands have learnt to live with this “menace” by

• Creating strong brand loyalty (e.g. airlines’ frequent flyer schemes)
• Building a strong market visibility (e.g. event sponsorship)
• Offering special benefits or promotions (e.g. free delivery scheme by Blinkit)
• Providing membership options (e.g. membership card by Max retail stores)

Discussion Question

Do you think penetrating a new market is a wise expansion strategy? Why?